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Modest MTM losses for banks; system stable: RBI

October 24, 2008 16:52 IST

After his first review of monetary policy, Reserve Bank Governor D Subbarao asserted on Friday that  Indian financial system is stable and healthy and said domestic banks have suffered some mark-to-market losses on account of exposure in foreign assets.

"Indian banks do not have direct financial exposure to the US sub-prime assets. Foreign subsidiary and foreign branches of Indian banks have suffered some mark-to-market losses on financial instruments due to the widening of credit spreads," he told reporters after the mid-term review of the annual monetary policy in Mumbai.

Pointing out that the Indian financial system is stable and healthy, Subbarao said, "These losses are modest relative to the size of their business and adequate provisioning has been made for these".

"The overall capital adequacy ratio of the commercial banks is 12.7 per cent, well above the regulatory minimum of 9 per cent and Basel requirement of 8 per cent," he said, adding, mandatory statutory liquidity ratio of 25 per cent and cash reserve ratio of 6.5 per cent provide inherent strength to the Indian banks.

Under the regulatory norms, all banks are required to park 25 per cent of their funds in government securities and keep 6.5 per cent with the RBI to meet CRR requirements.

As regards the impact of global financial meltdown, Subbarao said, the developments are having an indirect impact on the domestic financial and money markets resulting in tightening of liquidity conditions.

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